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IPTV on the Xbox 360: Ars digs deep

As we reported last night, Microsoft has announced that IPTV is coming to the Xbox 360. Some apparently took this to mean that Microsoft would be providing a new service of its own, but the reality is that IPTV will only work with third-party support—so let's hope you like your local telephone company.

Microsoft did not announce either a new product or a new service at CES last night. The company has been working in television for years, and its Microsoft TV IPTV Edition platform is currently being rolled out by providers across the globe. All that this announcement says is that the front-end software will be available for the Xbox 360, essentially turning the console into a traditional set-top box (STB) with a few additional features like voice chat.

In order to watch TV on the console, though, customers need to have an ISP that plans to offer the service across their network. Phone companies are the ones deploying IPTV as a way of competing with cable, so it's no coincidence that the five partners Microsoft announced last night have their roots in telephone services. AT&T, British Telecom, Deutsche Telekom, C-Com, and Swisscom are already in trials with the IPTV technology (AT&T, for instance, is in the midst of a full-scale rollout) and are certainly happy to provide access to Xbox 360 users. Such a move will also save them some cash, as they won't need to provide an STB to 360 owners.

This isn't going to be free; no pricing has yet been announced, but expect it to be aligned with these companies' regular IPTV plans. It's also not immediately available. Microsoft is only saying that the service should be functional by "holiday season 2007"—and we'll go out on a limb to say that the "holiday" they have in mind isn't May Day.

What does IPTV offer?

Why would anyone want to watch television through their 360? It allows users to ditch the cable box, it offers near-instant channel changes, it allows for voice chat through the headset while watching television, and text and voice messages can be delivered while watching TV. And did we mention high definition? IPTV can handle both standard and high-definition streams, and Microsoft's Albert Penello said that he could "watch and record my favorite TV shows in standard and high-definition."

Microsoft didn't elaborate on this last bit, but it's clear that DVR functionality is coming to the Xbox. The obvious and unavoidable implication is that the console is also getting a larger hard drive—much larger—and that the refreshed hardware will be available by the end of the year.

This is a great move by the company, as it comes without real risk for anyone. The telecom companies have already invested in wide-ranging deployments of the backend Microsoft technology, so they have nothing to lose by supporting a few more users. Microsoft wins because they don't need to get into the murky world of content licensing and distribution. Instead, they take care of the interface and let the established players make the deals that will bring TV channels in over Internet connections.

It's also smart move because it doesn't alienate the telecom companies, which are investing billions in network upgrades to make IPTV possible. Microsoft would not make many friends (even at the now "network-neutral" AT&T) if it suddenly used those pipes to deliver its own IPTV service that bypassed the telecom companies (like the Venice Project hopes to do).

While talk of making the original Xbox a "home entertainment hub" was vastly overblown, Microsoft now seems to be on the right track with the 360. By the end of the year, the console will offer a high-definition movie rental service, IPTV, HD DVD (as an add-on), standard DVD, music, and video games. That's a potent combo (if IPTV is well-executed and widely available), and with Nintendo largely bowing out of the "connected home" race, Sony will need to react quickly if it wants to make the PS3 into a similar "set-top box replacement."